Hikma Pharmaceuticals PLC (“Hikma”) (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY), the fast growing multinational pharmaceutical group, today announces that it has signed an asset purchase agreement with Ben Venue Laboratories, Inc., a member of the Boehringer Ingelheim Group of Companies, to acquire assets of Bedford Laboratories (“Bedford”), its US generic injectables business, for a total consideration of up to $300m, which will be satisfied through an upfront cash payment of $225 million. A further $75m in contingent cash payments will be paid, subject to the achievement of performance-related milestones, over a period of five years. In addition, Hikma has entered into an exclusivity arrangement with the Boehringer Ingelheim Group to potentially acquire substantially all of the assets of the Ben Venue manufacturing facility in Bedford, Ohio, one of the largest sterile injectable manufacturing sites in the world.

Bedford is a generic injectables company with the third largest portfolio of generic injectable products in the US.1 Under the agreement, Hikma is acquiring Bedford’s assets, including a large product portfolio, intellectual property rights, contracts for products marketed under license, raw material inventories, a strong R&D and business development pipeline and a number of employees across key business functions.

The combination of these assets with Hikma’s existing global Injectables platform will significantly strengthen Hikma’s position as a leading generic injectables company in the US.

Transaction highlights
· Helps to address critical supply shortages in the US market through the planned re-introduction of the acquired products
· Delivers significant strategic value, adding a large portfolio, broad pipeline and experienced employee base to strengthen Hikma’s position as a leading generic injectables company in the US
· Brings a broad range of complementary products, including a large oncology portfolio and a number of niche, differentiated products
· Adds a unique and attractive R&D pipeline and a number of business development opportunities, along with experienced R&D and operational teams
· Leverages Hikma’s US FDA approved injectable manufacturing capacity in the US, Portugal and Germany, as well as its expertise in sterile liquid, lyophilised and cytotoxic production, bringing scale benefits and cost synergies
· Slightly dilutive to adjusted2 earnings per share (“EPS”) in 2014 and 2015, with strong EPS accretion thereafter as the acquired products are re-introduced to the market

Said Darwazah, Chief Executive Officer of Hikma commented: “I am very excited to be making this strategically important investment in our Injectables business. Bedford’s impressive product portfolio and deep pipeline will significantly increase the scale and scope of our rapidly growing US Injectables business. The large number of high value, niche and differentiated products we are acquiring will strengthen our market position in the US and will benefit patients by bringing back products to the market that are currently in short supply.

Through our disciplined approach to M&A, we have established an excellent track record of making value enhancing acquisitions. I am confident that we have the technical capabilities and manufacturing expertise to successfully re-launch the acquired products over the next few years and our success in integrating the MSI acquisition will help to ensure a smooth integration. We remain committed to investing in the long term growth of our Injectables business and we believe that this transaction will deliver significant future value for the Group.”

Paul R. Fonteyne, US Country Managing Director, President and CEO of Boehringer Ingelheim USA Corporation, and Chairman, Ben Venue Board of Directors commented: “We believe that this is a positive development, allowing Hikma to leverage its existing infrastructure and manufacturing capabilities to re-introduce important products to the US market, bringing significant benefit to patients. For more than 20 years, Bedford Laboratories and its product portfolio have been of great value to patients, customers and the marketplace. As part of Hikma, the Bedford team will remain focused on strengthening its relationships with customers and continuing to serve the needs of patients.”

Strategic rationale
In 2013, Hikma’s global Injectables business generated revenue of $536m and accounted for 39% of Group revenue. Investing in the growth and development of this business has been a key strategic priority in recent years. In May 2011, we completed the acquisition of Baxter’s Multi-Source Injectables business (“MSI”), which transformed our US Injectables business, establishing Hikma as the third largest supplier by volume in the US generic injectables market. The large and fast growing US generic injectables market is valued at around $7.6 billion3 and offers significant future growth opportunities. Our strategic focus within Injectables continues to be to increase our US market share by value through investment in a strong product portfolio and pipeline.

This acquisition marks another significant step towards achieving our ambitions in Injectables, adding a large portfolio of 84 products, which combined with Hikma’s 63 existing marketed products, creates the broadest portfolio of generic injectable products in the US market.4 Bedford’s portfolio spans a range of therapeutic categories and includes a large number of oncology products, as well as a number of niche, differentiated products.

Bedford also brings a unique and attractive R&D pipeline of 27 products, of which 16 are filed and pending approval from the US FDA. The pipeline assets focus on higher value, medically necessary and acute care products, including numerous Paragraph IV opportunities. The pipeline also includes several exciting business development projects, including licensing and co-development partnerships.

The acquisition will strengthen our current US operations, adding highly skilled employees across key business functions, such as R&D, sales and marketing, business development and regulatory affairs. These employees will bring experience and expertise in US injectables and strengthen Hikma’s existing operations.

Hikma will be able to leverage its US FDA approved facilities in the US, Portugal and Germany to manufacture the acquired products, which we will begin transferring to Hikma’s sites immediately following closing the transaction. We are targeting to transfer an initial tranche of around 20 products, which we expect to be able relaunch to the market between 2015 and 2017, with the potential to transfer further products thereafter. The products will be prioritised based on the strength of the market need, the ease of transfer and the expected gross margin contribution.

In addition, Hikma has entered into an exclusivity arrangement with the Boehringer Ingelheim Group to potentially acquire substantially all of the assets of the Ben Venue manufacturing site in Bedford, Ohio, subject to due diligence and customary approvals in the United States and the United Kingdom. These assets would significantly enhance Hikma’s existing global injectable manufacturing capabilities, adding one of the largest lyophilisation plants in the world and dedicated cytotoxic facilities.

Financial information
In 2013, the assets subject to the transaction generated revenue of $19m and negative EBITDA of $22m,5 which reflects the limited sales of Bedford’s products following manufacturing issues at its affiliate, Ben Venue, which halted production in 2013. Hikma expects the acquired assets to generate limited revenue in 2014 and 2015 while products are being transferred to Hikma’s manufacturing sites. By 2017, Hikma expects revenue from the acquired assets to have increased significantly to around $150m, as the acquired products are re-launched and certain pipeline opportunities are realised, with strong growth potential thereafter. The acquisition is expected to be slightly dilutive to adjusted6 EPS in 2014 and 2015 and strongly accretive to adjusted EPS from 2016 onwards.

The gross assets subject to the transaction, prior to the performance of the fair value exercise and excluding acquired intangible assets, have a book value of $65m.7 They are primarily comprised of raw material inventories and will help to accelerate the re-launch of the acquired products to the market. The transaction will be funded by new debt facilities. We expect to complete the transaction in the second half of 2014, subject to customary regulatory approvals.

Following completion of this transaction, we will continue to have the financial flexibility to pursue further value enhancing opportunities across our businesses.

Centerview Partners and Citigroup Global Markets Limited (“Citi”) acted as financial advisers to Hikma. Citi and HSBC jointly led the arrangement of the financing. White & Case LLP acted as lead counsel to Hikma.

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